GRANTS MANAGEMENT

Part 4—Administering the Grant Contract

A version of this article appeared in Blue Avocado in June of 2024

http://blueavocado.org/fundraising/nonprofit-grant-management/

Up to now we have been focused on getting the grant. Now let’s imagine that our efforts have succeeded and we have been awarded the amount that we asked for. Now the challenge of administering the grant begins. The CFO will play a central role in carrying out the many responsibilities that the organization takes on in its collaboration with the funder.

Here are four main areas where the CFO has a leadership role.

  1. Understanding the contract
  2. General Ledger setup and transaction processing
  3. Payment requests
  4. Spending the money

1) Understanding the contract.

The first challenge is getting access to copies of both the application and the signed contract. You need to be familiar with the promises made in the application and the conditions and requirements outlined in the contract. In fact, many people need to be able to see these documents and they may wind up in a number of places, like the ED’s office, the development office, or a program manager’s office. I have had success setting up shared digital folders where pdfs of applications and contracts are available to everyone.

Here are some questions to ask as you study the contract:

  • Payment requests and reports
    • Are there submission due dates?
    • Are request forms included in the contract?
    • What documentation must accompany the payment request?
    • Are there milestones to meet or statistics to report before payment can be requested?
    • Are there guidelines that specify expenses that are not allowable, or a required methodology for allocating M&G (management and general) cost?
  • Are there provisions for budget amendments?
  • How should the grant be classified from a GAAP (Generally Accepted Accounting Standards) standpoint?

Some explanation is needed on this point: The contract is the key to the GAAP classification of the revenue. The rules have changed in the last few years, making it imperative for auditors and grant recipients to determine if a grant is conditional or unconditional. (For more on GAAP revenue recognition of grant income, see Essays 13 – 15 on marymightknow.com)

So why does conditionality matter? Because it determines how you will classify the revenue in your GL. If the grant is deemed to be unconditional, you will record all of the revenue in the year that you receive the official notice of award, with the offset to accounts receivable or cash. If the grant is conditional you will record the revenue as you carry out the funded activities. And if you receive a cash advance on a conditional award, the offset will be to deferred revenue.

If you are unsure if your project funding is conditional or unconditional, I highly recommend that you seek your auditor’s advice on how to record the revenue. Remember, the auditors are trained in this difficult area, and their interpretation of the terms of the contract will be the last word. If you don’t consult with them now, you risk learning during their fieldwork that your revenues must be adjusted. In don’t know about you, but one of my least favorite job duties is explaining changes to the ED months after the books have been closed!

2) General Ledger Setup and Transaction Processing

From an accounting perspective, grants management is all about accurate transaction processing.

As I’ve discussed in previous articles, every transaction must go to the right cost center (or “class” in Quickbooks™) to assure that the numbers you pull from the general ledger (GL) for payment requests are unique, legitimate expenses with no possibility of double-dipping.

Starting on the first day of the contract period, revenues and expenses must be accurately charged to the correct accounts and cost centers—these might be bi-weekly payroll expenses, a $5 credit card receipt, or a vehicle repair bill. All shared expenses (such as supplies, vehicle usage, office rent, or program supervision) must be allocated using the same methodology that you used for the proposal budget.

For a larger grant, you may need a few weeks or more of lead time to create a new cost center, reconfigure your indirect cost allocation routines, and/or make adjustments to your reporting system. Program managers and their staff must also be trained to code the new cost center on all invoices and receipts relating to the project—even that $5 credit card receipt must identify the correct cost center. And your accounts payable/receivable staff need to be on the lookout for the proper codes on those invoices and receipts. It might be a good practice for finance staff (or the CFO) to review weekly check runs and ensure that project expenses were entered correctly in the GL.

All of this double-checking might feel burdensome, but remember that your top priority is to accurately translate the program’s activities into funding dollars. In a grant cost center, money out (expense) equals money in (grant revenue). This means that the 10% of a telephone bill that goes to the wrong cost center, for example, will not be included in the correct payment request. The expense will either go unreimbursed, or worse, it will go on a payment request for the wrong program.

Woe betide the finance person who does not get around to GL setup and training by the first day of operation! Payment requests will be a nightmarish experience of searching through cost centers for the reimbursable expenses. And one can’t imagine the extra work involved in correcting the accounts and cost centers after expenses have been incorrectly recorded.

When you start working on the first payment request, you will thank yourself and everyone involved for all of this upfront work.

3) Payment Requests

The CFO and other staff’s on-going relationship with the funder usually begins when the program is underway and cash is needed to cover the expenses. Of course, every funder has a different approach to releasing funding. At one end of the spectrum, they might require nothing more than a letter each quarter asking for 25% of the award, followed by a budget-to-actual report at the end of the year. At the other end of the spectrum, you might be asked to provide a specialized, detailed financial report every month, along with program performance statistics and copies of invoices and time sheets. The first payment request will be a breeze if you have studied the contract and understand the requirements.

Here are some tips for establishing rapport with the funder through the payment request process:

  • Use the term “request for payment” rather than “claim.” Some foundation personnel prefer this terminology and will appreciate your attention to this detail, small as it might seem.
  • Submit requests on or before the deadline.
  • Meet all requirements; don’t hesitate to call the funder’s office if there are any that you don’t fully understand.
  • Organize any backup documentation in the same order as the requested amounts, perhaps highlighting the totals that correspond to amounts requested. The name of the game is making it easy for the funder to review the request.
  • If the contract requires voluminous backup documentation (such as invoices, credit card receipts, payroll records, etc.), consider scanning or copying them with every check run and keeping them in a dedicated electronic or paper file to save time preparing the request.

4) Spending the Money

Underspending a grant contract is a headache that pops up more often than you might expect. It is guaranteed to haunt you if you applied for funding without adequate planning and evaluation of need. But it can crop up even if you did everything right.

Like all budgets, the proposal budget is a collection of estimates based on incomplete information, which means that it’s never an exact science. Despite the team’s best planning efforts, underspending can happen when there is a delay in hiring and training staff, staff turnover occurs, or time is needed to gather referrals for the services, to name a few possible scenarios.

However, some of these challenges can be avoided with careful monitoring. There’s no need for CFOs to spend New Year’s Eve filling up shopping carts with office supplies to spend up grant money. Instead, an infinitely better approach is for finance and program people to work together to monitor the financial reports and plan ahead.

The monthly budget-to-actual income statement is designed to show how the program is doing in spending the money on schedule, but consider the many demands on the program manager’s time. Despite their best intentions, the program manager may not always read their financials.

Here, a little extra effort on the part of the finance department to communicate with the program may be warranted. Hopefully, you have cultivated a strong relationship with your program managers. Instead of feeling like they are being scolded, they should feel grateful when you alert them that their spending rate is too high or too low.

But what if you still can’t spend all the money? Before contemplating giving back funding, take a careful look at your cost allocations. Remember that when you developed the application budget, you were using the information you had at hand. Now, you have actual experience and actual numbers to work with.

First, see if your shared costs are correctly allocated between programs and between cost centers. The actual usage of office supplies or vehicles may be different from your expectations. Supervisory and support staff may be spending more time in the program than you had imagined.

Second, review the time that M&G (Management and General) personnel have spent on the new program. Find out if the IT staff spent a significant amount of time reconfiguring the network for the new hires. Or maybe your quality assurance staff spent time creating new policies, procedures, and audit programs for this program. Any activities of this sort (that can be documented) can give you justifiable cause for increasing your indirect cost allocations. Remember, M&G costs are defined as costs that cannot be identified with an individual program. M&G personnel hours identified with individual programs can be carved out of M&G expense and charged to the relevant program.

But sometimes, despite our best efforts, the approved grant budget and the actual costs just don’t match. At this point, you must alert your ED and suggest a frank discussion with the funder. As I have stressed elsewhere, the foundation is your partner in carrying out this project and has just as much at stake as you do. As such, your ED should be on board with informing the funder of the challenges you have encountered. The relationship that you have built with your funder will help you to convince them of two things: one, you have operated in good faith, and two, you have the know-how to overcome any obstacles for a successful project.

Especially if you are just starting a new program, the funder should understand that a slow start is sometimes unavoidable and be agreeable to a “no-cost extension.” This means extending the grant period for as many months as are needed to use the funding as it is intended.

Alternatively, you may be able to get the go-ahead to use a budget amendment to redirect unspent salary expense, say, to an unmet need. This unmet need might be a vehicle to transport clients to appointments or specialized software to better track program outcomes. Again, to make this happen you must clearly communicate to the funder the source of the unspent funds and how your proposal will strengthen the program.

Everybody needs to be all in for this to work.

At the end of the day, grant administration involves program managers and their staff, the finance department, executive management, and the funder, too. A successful grant award creates a network that connects all of you to each other, wherein the strength of the grant (and how effectively it can be used) depends upon everyone’s teamwork and the CFO’s guiding hand every step of the way.